4imprint Group — FY23 finishes strongly

4imprint Group (LSE: FOUR)

Last close As at 17/07/2024

GBP61.50

−10.00 (−0.16%)

Market capitalisation

GBP1,736m

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Research: TMT

4imprint Group — FY23 finishes strongly

4imprint’s year-end trading update indicates that 2023 was a strong year for the group’s financial performance. Revenue of $1.33bn is in line with guidance reiterated in November of ‘slightly above $1.3bn’, but PBT is now guided at ‘not below $140m’, above our previous expectation of $131m. We attribute the stronger profitability to a combination of higher gross margin and marketing efficiency. Strong cash performance resulted in the year-end balance of $105m exceeding our prior $84m estimate. Our revised FY24 and provisional FY25 profit and cash estimates are pushed ahead on this higher base on a 10% operating margin. The shares continue to trade at a substantial discount to our DCF valuation.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

4imprint-Group_resized

TMT

4imprint Group

FY23 finishes strongly

Trading update

Media

19 January 2024

Price

4,635p

Market cap

£1,307m

Expected net cash at 31 December 2023

$105m

Shares in issue

28.2m

Free float

97.6%

Code

FOUR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.2

2.9

2.9

Rel (local)

4.2

3.1

8.0

52-week high/low

5,350p

4,200p

Business description

4imprint Group is a leading direct marketer of promotional products in the United States, Canada, the UK and Ireland. In FY22, 98% of revenues were generated in the United States and Canada.

Next events

Full year results

13 March 2024

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

4imprint Group is a research client of Edison Investment Research Limited

4imprint’s year-end trading update indicates that 2023 was a strong year for the group’s financial performance. Revenue of $1.33bn is in line with guidance reiterated in November of ‘slightly above $1.3bn’, but PBT is now guided at ‘not below $140m’, above our previous expectation of $131m. We attribute the stronger profitability to a combination of higher gross margin and marketing efficiency. Strong cash performance resulted in the year-end balance of $105m exceeding our prior $84m estimate. Our revised FY24 and provisional FY25 profit and cash estimates are pushed ahead on this higher base on a 10% operating margin. The shares continue to trade at a substantial discount to our DCF valuation.

Year end

Revenue
($m)

PBT*
($m)

EPS*
(c)

DPS**
(c)

P/E
(x)

Yield
(%)

12/21

787

30.2

80.3

45.0

73.6

0.8

12/22

1,140

103.7

285.0

160.0

20.8

2.7

12/23e

1,330

140.0

372.6

185.0

15.9

3.1

12/24e

1,430

146.5

394.4

210.0

15.0

3.5

12/25e

1,500

153.8

407.8

225.0

14.5

3.8

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles and exceptional items. **Excluding special dividends.

Continued market outperformance

Revenue of $1.33bn, as indicated in the update, represents year-on-year growth of 16%. This is considerably ahead of the North American market, which is estimated by industry body PPAI to have grown by 3.1% in 2023, with slower growth in H2 as economic uncertainties came more to the fore. 4imprint’s margin improvement is better than we had modelled. At the interims, FY23 guidance was for PBT of at least $125m. That moved up to at least $130m at Q323 (see our November Outlook note), so this further uplift implies a particularly good Q423 from a margin perspective. We expect the margin improvements to be maintained, so on unchanged revenue numbers, this lifts our EPS forecasts by 3% in FY24 and FY25.

Strong cash generation

The year-end cash position of $105m is well ahead of our previously modelled $84m, which was clearly conservative given that the end-October cash balance was $95m. The year-end result does imply particularly strong cash conversion in H223, with a working capital performance that reversed the inflow from the prior year. With few M&A possibilities in our view, cash utilisation priorities remain investment in growing the business and dividend payments to shareholders.

Valuation: Still well below DCF valuation

The share price has recovered c 10% from the lows post the Q323 trading update and is now c 8% up on a 12-month basis. A discounted cash flow (weighted average cost of capital of 9%; terminal growth of 3%, as before) generates an implied value of £61.15, up from £60.68 at the time of our end-November Outlook note, and well ahead of the current price.

Exhibit 1: Financial summary

$000s

2021

2022

2023e

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

787,322

1,140,286

1,330,000

1,430,000

1,500,000

Cost of Sales

(561,306)

(818,670)

(925,553)

(996,710)

(1,047,000)

Gross Profit

226,016

321,616

404,447

433,290

453,000

EBITDA

 

 

35,660

108,428

142,800

151,600

159,500

Operating profit (before amort. and excepts.)

 

30,646

102,902

136,500

143,000

150,000

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

30,646

102,902

136,500

143,000

150,000

Net Interest

(417)

804

3,500

3,500

3,800

Profit Before Tax (norm)

 

 

30,229

103,706

140,000

146,500

153,800

Profit Before Tax (IFRS)

 

 

30,229

103,706

140,000

146,500

153,800

Tax

(7,643)

(23,563)

(35,000)

(35,160)

(38,450)

Profit After Tax (norm)

22,586

80,143

105,000

111,340

115,350

Profit After Tax (IFRS)

22,586

80,143

105,000

111,340

115,350

Discontinued businesses

0

0

0

0

0

Net income (norm)

 

 

22,586

80,143

105,000

111,340

115,350

Net income (IFRS)

 

 

22,586

80,143

105,000

111,340

115,350

Average Number of Shares Outstanding (m)

28.1

28.1

28.1

28.2

28.2

EPS - normalised fully diluted (c)

 

 

80.3

285.0

372.6

394.4

407.8

EPS - (IFRS) (c)

 

 

80.5

285.6

373.4

395.2

408.7

Dividend per share (c)

45.0

160.0

185.0

210.0

225.0

Special dividend per share (c)

0.0

200.0

0.0

0.0

(0.0)

Gross Margin (%)

28.7

28.2

30.4

30.3

30.2

EBITDA Margin (%)

4.5

9.5

10.7

10.6

10.6

Operating Margin (before GW and except.) (%)

3.9

9.0

10.3

10.0

10.0

BALANCE SHEET

Fixed Assets

 

 

40,011

47,940

47,709

66,056

66,556

Intangible Assets

0

1,010

1,010

1,010

1,010

Other intangible assets

1,045

957

957

957

957

Tangible Assets

24,667

29,255

31,255

49,655

50,155

Right of use assets

11,725

13,103

11,400

11,400

11,400

Deferred tax assets

600

2,381

3,034

3,034

3,034

Retirement benefit asset

 

 

1,974

1,234

53

0

0

Current Assets

 

 

127,771

192,353

222,434

253,789

311,276

Stocks

20,559

18,090

20,467

22,446

23,074

Debtors

63,589

87,511

96,967

106,343

108,202

Cash and short-term deposits

41,589

86,752

105,000

125,000

180,000

Other

2,034

0

0

0

0

Current Liabilities

 

 

(73,027)

(87,401)

(107,658)

(113,134)

(116,036)

Creditors

(71,877)

(85,966)

(106,278)

(111,984)

(115,116)

Short term borrowings

0

0

0

0

0

Lease liabilities

(1,150)

(1,435)

(1,380)

(1,150)

(920)

Long Term Liabilities

 

 

(11,789)

(12,672)

(11,278)

(10,078)

(10,078)

Long term borrowings

0

0

0

0

0

Lease liabilities

(10,939)

(12,315)

(10,920)

(9,720)

(9,720)

Other long term liabilities

(850)

(357)

(358)

(358)

(358)

Net Assets

 

 

82,966

140,220

151,207

196,633

251,718

CASH FLOW

Operating Cash Flow

 

 

22,846

101,317

168,500

132,875

159,350

Net Interest

(409)

699

3,500

3,500

3,800

Tax

(6,414)

(20,755)

(32,500)

(32,660)

(35,950)

Capex

(3,465)

(8,011)

(8,300)

(27,000)

(10,000)

Acquisitions/disposals

0

(1,700)

0

0

0

Pension contributions

(4,589)

(4,367)

(6,600)

0

0

Financing

(843)

(866)

(900)

(900)

(900)

Dividends

(4,134)

(18,722)

(103,560)

(54,612)

(60,744)

Other/ Capital portion of lease repayments

(1,117)

(2,432)

(1,900)

(1,200)

(500)

Net Cash Flow

1,875

45,163

18,240

20,003

55,056

Opening net debt/(cash)

 

 

(39,766)

(41,589)

(86,752)

(105,000)

(125,000)

Net impact of disposals etc

0

0

0

0

0

Other

(53)

0

8

(4)

(56)

Closing net debt/(cash)

 

 

(41,589)

(86,752)

(105,000)

(125,000)

(180,000)

Source: 4imprint Group accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by 4imprint Group and prepared and issued by Edison, in consideration of a fee payable by 4imprint Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by 4imprint Group and prepared and issued by Edison, in consideration of a fee payable by 4imprint Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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The Pebble Group’s year-end trading update confirms that the outturn has been in line with the revised guidance from November’s update, with revenue of £124m and adjusted EBITDA of around £16m, also reflected in our modelling. The only divergence is in cash generation, which has been better than we anticipated, with a year-end net cash balance (excluding leases) of £15.9m, against our modelled £15.1m. The results announcement is set for 19 March, at which point the outlook for the current year should be clearer.

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